Electronic trading systems typically comprise a trading system and a clearing house. The clearing house handles all activities from the time a commitment is made for a transaction in the trading system until the trade is settled. A clearing house is legally required to calculate margin requirements for the members clearing through the clearing house. A margin requirement is used to cover the highest probable loss a portfolio may experience before the risk of the portfolio can be hedged in event of a default situation. The clearing house is required to demand sufficient collateral from each member as security to meet that member's margin requirement. The margin requirement is dependent both on the member positions and on the market data used in the calculations.
The clearing house typically receives information about new transactions a few times a day from the trading system and carries out new risk assessments to establish the margin requirements for the accounts at the end of the day or a few times a day. If the updated risk assessments show that the collateral provided by a member is lower than the margin requirement for that member, the member is requested to provide additional collateral. If the member does not provide additional collateral as security, the clearing house may instruct the trading system to stop taking orders from the member until the member has provided additional collateral. A disadvantage with this method is that at the time when the trading system is instructed to stop taking orders from a member, the trading system may already have matched a number of additional orders entered by the member with other members' orders. The trading system can cancel the trades, but that means that the other members' orders would have to be released and the matching process would have to be re-started.
The invention aims to improve on the prior art.